China cuts interest rate for second time in two months

China's central bank cut interest rates for the second time in two months on
Thursday to bolster an economy widely expected to record its sixth
successive slide in growth in April-June.

China's economy grew at 8.1pc in the first three months of 2012 - its slowest in nearly three years, raising investor concerns that a five-quarter long slide has not bottomed and that more policy action would be needed to halt it. Photo: Getty

The central bank also took another step in liberalising interest rates by lowering the floor for lending rates to 70 percent of benchmark rates from 80 percent previously.

"The fact that China is actually cutting lending and deposit rates is a bigger deal than just reducing the reserve requirement," said David Morrison, market strategist at GFT Global. "But there's a great big Chinese data dump next week, so the question is whether this is a heads-up that the data will not be as good as hoped."

China is due to release data next week covering the second quarter and the month of June.

A Reuters poll published on Thursday showed that economists expect the data to show China's economy expanded in the second quarter by 7.6pc from a year earlier, its weakest performance since the 2008-09 financial crisis.

That would be down from 8.1pc in the first quarter and a sixth straight quarter of slowing growth.

China has lowered the amount of cash banks must keep in reserve in three 50-basis point steps since November, freeing up an estimated 1.2 trillion yuan (£122m) for fresh lending. The last cut was in May.

Beijing has also fast-tracked investment projects and rolled out new incentives to spur consumer spending on energy-efficient products, but it has studiously avoided any hint so far of putting together a repeat of the 4 trillion yuan fiscal spending package rolled out in 2009-10.